## _cr0649

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---

### Executive summary — overview and scope
- Assessment of fiscal transparency practices in Greece against the IMF Code of Good Practices on Fiscal Transparency based on:
  - discussions with the authorities and other organizations;
  - the authorities’ response to the IMF fiscal transparency questionnaire; and
  - other sources of information.
- Focus primarily on central government, given its predominance in the public sector.
- Note: transparency of fiscal management at other levels of general government is not discussed in detail; non-central government (particularly social security funds and hospitals) represents a significant fraction of overall general government spending and has been a source of revisions to fiscal statistics.

### Executive summary — progress and remaining challenges
- Progress:
  - Notable improvements in public availability of information, with increased publications and use of the internet.
  - At central government level, budget processes give assurances of integrity about fiscal data through independent audit and recently strengthened statistical reporting.
- Remaining challenges:
  - Organic budget law prescribes a detailed control-oriented budget management system with little insight into government policies, activities or performance.
  - Lack of modernization of fiscal institutions and systems; major reforms necessary to clarify roles and responsibilities and to advance more open budget preparation, execution, and reporting.
  - Need to improve accounting and audit systems and extend coverage to the rest of general government.

### Main recommendations (listed in source)
- Present a fully consolidated budget, unifying the ordinary and investment budgets, and providing full information on the activities of extrabudgetary funds, local governments, and relevant public entities. Include estimates of contingent liabilities and quasi-fiscal activities.
- Execute the central government budget through a more transparent treasury single account (TSA) structure, and provide consistent and regular financing data for both central and general government to Parliament and public.
- Inject a policy perspective into the budget by introducing a program structure that clearly identifies the government’s objectives and encourages evaluation of efficiency and effectiveness.
- Develop a detailed medium-term budget framework supported by a more comprehensive mid-year review of budget developments and fiscal sustainability analysis.
- Move in a phased way from present detailed centralized controls, and strengthen internal financial management in budget institutions to increase accountability.
- Phase out pre-audit of the MEF’s fiscal accounting offices; redeploy Court of Audit resources away from pre-audit to ex post systems and value-for-money audits.
- Strengthen accounting system, especially reconciliation between ledger and bank records; introduce a computerized FMIS and phase to at least a partial accrual accounting basis.
- Strengthen transparency in tax administration by moving to a modern risk-based system, streamlining internal organization, audit procedures, compliance regulations and appeal processes.
- Monitor and report on operations of social security funds in a consolidated manner; bring forward publication of the Social Budget with timely publication and analysis of outturns.
- Make quasi-fiscal activities more transparent; where necessary introduce explicit public service agreements clarifying implicit subsidies and contingent liabilities.
- Better define responsibilities of lower level governments with more complete reporting on their operations, especially borrowing; strengthen regulations and central monitoring.

### Clarity of roles and responsibilities — detailed findings
- Definition and coverage of general government:
  - General government largely defined consistently with GFS principles, but not well covered in the budget process.
  - Consolidated information on municipal expenditure and revenue, the social security sector, and public entities part of general government is not available in budget documentation.
  - Budgets of 11 “off-budget” funds are co-published with the budget, but rationale for their presentation outside the budget is unclear; these funds’ budgets are not subject to normal parliamentary authorization.
  - General government comprises some 149 extrabudgetary social security and pension funds; their budgets are approved by their boards, and by the Minister of Labor and Social Affairs (MLSA) and the Minister of Economy and Finance (MEF).
- Parliamentary information and oversight:
  - Parliament is provided information on, and asked for approval of, transfers to these funds from the state budget without a due presentation of their overall budgets.
  - Consolidated, gross expenditure and revenues of public entities are prepared ex post for reporting to Eurostat and IMF; consolidated information should be included in budget documentation to facilitate parliamentary oversight.
- Size and composition (Box 1 data):
  - Central Government Units Covered by the Budget: Parliament, the Presidency, the Judiciary, 17 ministries, 13 regions.
  - Public Entities with Individual Budgets Classified Within Central Government Sub-sector: Social Securities Funds and Hospitals — 149 social security and pension funds; 133 medical establishments.
  - Local Government: 1,033 municipalities and villages.
  - Total General Government — Expenditure as Percent of GDP 2004 (gross): 39.2; Central Government (gross) 20.8; Public Entities 2.9.
  - Expenditure as Percent of GDP 2004 (consolidated, net of transfers to other general government units): Total General Government 29.1; Central Government 17.9; Public Entities 2.8.
  - Total consolidated figure cited: 49.8 (context in source page).

### Quasi-fiscal activities (QFAs) and public enterprises
- QFA presence:
  - QFAs remain present in several sectors: urban transport, state railways, energy, telecommunications, defense, banking, real estate, and postal services.
  - Loss-making public enterprises, especially in transport, receive active budgetary support.
- Indicator of QFA (recurrent grants and subsidies, Ministry of Economics and Finance data):
  - In million Euro: 1990 — 285; 1995 — 358; 2000 — 303; 2004 — 210
  - As percent of GDP: 1990 — 0.6; 1995 — 0.5; 2000 — 0.2; 2004 — 0.1
  - Note: Capital grants and loan guarantees not included.
- Institutional and reporting issues:
  - Profit transfers from state enterprises are not clearly specified and have been minimal.
  - Privatization Agency DEKA can use privatization proceeds to clear debts and bolster equity; DEKA reports yearly to the Minister of Economy and Finance but its report is not transmitted to Parliament.
  - Privatization receipts often retained in a special privatization account at the Bank of Greece (BOG) and spent outside the normal budgetary process without due parliamentary approval.
  - BOG is operationally fully independent and part of the European System of Central Banks since 1999; Article 71 determines profit remittances; BOG invests some 70 percent of social security funds’ reserves in government bonds.
  - Government retains equity holdings across many sectors; plans to impose IFRS on public enterprise financial accounting.

### Local government structure, finances, and borrowing
- Structure and responsibilities:
  - Four main levels: municipalities and communes (first), prefectures (second), regions (deconcentrated units of central government), and central government.
  - There are 1,031 municipalities and 54 prefectures. (A 1997 consolidation reduced units from 5,751 to 1,031; Law 2503/1997 consolidated existing regions into 13.)
  - Regions function as deconcentrated units; each region headed by a secretary general appointed by central government and whose budget is approved by Parliament.
- Financial autonomy and revenues (2004):
  - Municipalities receive roughly 57 percent of their revenues from central government; about 30 percent of that amount is received as earmarked grants and the remainder as a general purpose grant.
  - Municipal own revenues were some 38 percent of resources in 2004.
  - Loans comprised not more than 6 percent of municipality resources.
  - Prefectures are dependent for almost 96 percent of their revenues on government transfers.
  - Municipalities are entitled to a share of 20 percent of income tax; 50 percent of road duties; 20 percent of taxes on interest of deposits; and 3 percent of the real estate transfer tax.
  - The general purpose grant of municipalities comprised approximately 7 percent of total central government tax revenue in 2004.
- Borrowing framework and gaps:
  - Loan approvals require municipal or prefectural council approval; loans above 3 million euros require a two-thirds council majority.
  - Each loan requires a report on repayment capacity approved by the regional administration on behalf of the Minister of the Interior, but it is unclear whether repayment capacity is evaluated systematically.
  - No restrictions on borrowing modalities (no maximum debt-revenue or debt-service to revenue limits).
  - Present indebtedness of local government appears low and may be balanced by substantial cash holdings, but distributional data are lacking.

### Social security funds: structure, finances, and reporting
- Structure and financing:
  - 149 social security and pension funds organized by beneficiary employment group; many funds provide multiple benefits.
  - Approximate investment reserve of 20 billion euros, managed some 70 percent by the BOG in a bond mutual fund.
- Operational and governance issues:
  - Funds are fragmented, in part heavily dependent on government bridging grants; individual funds run deficits and seek transfers rather than raise contributions or reduce benefits.
  - Payment arrears of employers have worsened some funds’ finances; health sector inefficiencies have increased costs.
  - Budget preparation for funds appears to be based on expected transfers from the state rather than entitlement-based calculations.
- Reporting and the Social Budget:
  - Article 86 of Law 2084/1992 requires MLSA to publish a Social Budget and submit it to the President of the Greek Parliament annually.
  - The Social Budget covers revenues, expenditures and balances associated with social insurance, health and social protection and includes funds’ cash flow position and a statement of financial assets and liabilities.
  - Limitations: the Social Budget reports only on present and past year planned figures with no forward projections and often has timeliness problems (example: 2005 Social Budget reached the public in early July).

### Tax policy and administration — clarity and shortcomings
- Legal basis:
  - Taxes cannot be levied without statute (Article 78, Constitution).
- Administrative complexity:
  - Overly complex administrative procedures, multitude of exemptions, stamp duties and “third party taxes” make the system untransparent.
  - Reported uncertainty in income tax law interpretation; Code of Books and Records is comprehensive but voluminous.
  - Large number of tax exemptions (almost 1,000 exemptions cited).
  - Tax Reform Commission reforms since 2001; remaining opportunities include abolishing more stamp duties, ending preferential treatment of some products, eliminating many exemptions to corporate taxation, and making “third-party taxes” explicit.
- Tax administration practices:
  - Audit process frequently involves bargaining between taxpayers and tax officials; efforts underway to introduce "objective standards" to reduce discretion.
  - The Tax Reform Commission estimated some 300 third-party taxes in 2002.

### Rights and obligations of taxpayers and appeal procedures
- Appeals:
  - Taxpayers may appeal decisions if recorded within 60 days of formal notification.
  - Article 70 Committees handle most first-stage appeals and resolve majority of disputes, often by compromise; administrative appeals generally settled within a few months.
  - Judicial appeals to administrative courts can take two to five years and require a lawyer.
  - Role of Directors of local field offices in both assessment and appeals creates an appearance of lack of independence; recommendation to eliminate that role.

### Budget formulation, macro framework, and medium-term planning
- Calendar highlights (selected):
  - Fiscal year: January 1–December 31 (Organic Budget Law, 2362/95, Article 4).
  - January: Macroeconomic forecasts by MAD of MEF.
  - May: Budget circular distributed to ministries and regions.
  - July–September: Negotiations between GAO/MEF and ministries and regions.
  - First Monday of October: Draft budget submitted to the Financial Committee of the Parliament.
  - November 20 (40 days before fiscal year): Minister presents budget proposal to Parliament.
  - End of December: Budget approved by Parliament.
- Macroeconomic and fiscal framework:
  - Forecasts prepared by the Macroeconomic Analysis Department (MAD) published in “Current Economic Developments of the Greek Economy.”
  - Framework based on Stability and Growth Pact (SGP) criteria: deficit of general government no more than 3 percent of GDP and debt ratio target of 60 percent.
  - Process is largely bottom-up and incremental; fiscal projections not corroborated by medium-term bottom-up budget estimates; sensitivity analysis and fiscal risks are not systematically assessed.

### Budget execution, accounting, TSA, and arrears
- Execution and controls:
  - Organic budget law (Law No. 2362 of November 27, 1995) regulates execution; system emphasizes legal and financial compliance with detailed input controls and multiple checks.
  - Multiple controls largely apply to about 10–15 percent of the ordinary budget in 2005 (operational and other current expenditures).
  - Commitment control is weak; carry over of unpaid obligations occurs (example: Ministry of Education unpaid obligations of € 80 million at end-December 2004 carried into 2005).
  - Government payment operations effected by a main government account functioning as a quasi-TSA.
- Box 5 — TSA overview (selected facts and recommendations):
  - TSA: all government cash balances consolidated in bank Account No. 28 with the BOG.
  - Account No. 200 (“Concentration of collections and payments”) receives all inflows and outflows; eleven groups of accounts linked to Account No. 200.
  - A/C 231 Public Investment program accounts has about 2,000 project accounts.
  - Overall cash balances held in Account No. 28 averaged over 500 million euros in 2004.
  - Identified issues: many TSA-linked accounts are not under full control of the MEF (Privatization Account in A/C 234 is not fully owned by the government); extrabudgetary accounts held at commercial banks should be integrated into Account No. 28.
  - Recommendations: adjust overall cash balance in A/C No. 28 by balances of accounts not under treasury command; put such accounts in distinct subaccounts; integrate extrabudgetary commercial bank accounts into Account No. 28; review and close unnecessary or dormant subaccounts.

### Fiscal data coverage, publication, and debt reporting
- Coverage and quality:
  - Detailed fiscal information primarily covers central government; general government coverage and quality have many deficiencies.
  - Fiscal data largely meet SDDS timeliness and periodicity standards but deviate from ESA 95 in areas (e.g., military procurement recorded on cash delivery basis).
- Budget documents:
  - State budget covers central government operations on a cash basis (ordinary and investment budgets) and co-publishes eleven off-budget funds; transfers to public entities presented by a single budget line.
  - An executive summary of the budget is available in English at the website referenced in source.
- Contingent liabilities and guarantees:
  - Government guarantees are disclosed; other contingent liabilities are not assessed.
  - Legal annual limit on new guarantees: 3 percent of ordinary budget expenditure for the relevant budget year, but screening and risk analysis are weak and some guarantees excluded (natural disasters).
  - No systematic assessment of contingent liabilities from guarantees, privatization, PPPs or implicit guarantees of public sector banks’ deposits.
- Tax expenditures:
  - A tax expenditure statement is included with the budget but does not fully quantify foregone revenue; method described but an estimate is given for less than half of exemptions.
- Debt and assets publication:
  - Gross public debt information published regularly; no publication of borrowings by local governments, social security funds, and public enterprises.
  - Balance Sheet presented to Parliament and ratified, but does not fully reflect all financial assets (e.g., equity investments) or known liabilities (unmet obligations).
- Commitment to dissemination:
  - Greece subscribes to SDDS and meets central government data timetable; no formal advance release calendar for general government fiscal data.

### Key central government budget figures (selected from Table 1: Greece: Central Government Budget 2002–04, Euro million)
- Ordinary Budget — Net revenue (a-b):
  - 2002 Budget 37,453; 2002 Outrun 37,081; 2003 Budget 38,900; 2003 Outrun 37,500; 2004 Budget 41,420; 2004 Outrun 39,236
- Ordinary Budget — Revenue (a):
  - 2002 Budget 38,920; 2002 Outrun 39,048; 2003 Budget 41,050; 2003 Outrun 39,881; 2004 Budget 43,620; 2004 Outrun 42,035
    - Direct taxes: 2002 Budget 14,618; 2002 Outrun 14,813; 2003 Budget 15,510; 2003 Outrun 15,397; 2004 Budget 16,385; 2004 Outrun 16,484
    - Indirect taxes: 2002 Budget 20,666; 2002 Outrun 20,989; 2003 Budget 22,035; 2003 Outrun 21,484; 2004 Budget 24,341; 2004 Outrun 22,999
    - Non-tax revenue: 2002 Budget 3,636; 2002 Outrun 3,246; 2003 Budget 3,505; 2003 Outrun 3,000; 2004 Budget 2,894; 2004 Outrun 2,571
  - Tax refunds (b): 2002 Budget 1,467; 2002 Outrun 1,967; 2003 Budget 2,150; 2003 Outrun 2,381; 2004 Budget 2,200; 2004 Outrun 2,799
- Ordinary Budget — Expenditure (2):
  - 2002 Budget 36,637; 2002 Outrun 37,431; 2003 Budget 39,385; 2003 Outrun 40,735; 2004 Budget 42,550; 2004 Outrun 45,471
    - Interest payments: 2002 Budget 8,951; 2002 Outrun 9,134; 2003 Budget 9,400; 2003 Outrun 9,416; 2004 Budget 9,750; 2004 Outrun 9,466
    - Primary expenditure: 2002 Budget 27,686; 2002 Outrun 28,297; 2003 Budget 29,985; 2003 Outrun 31,319; 2004 Budget 32,800; 2004 Outrun 36,005
      - Salaries and pensions: 2002 Budget 14,123; 2002 Outrun 14,533; 2003 Budget 15,130; 2003 Outrun 15,602; 2004 Budget 16,404; 2004 Outrun 17,565
        - Wages and salaries: 2002 Budget 10,380; 2002 Outrun 10,547; 2003 Budget 11,097; 2003 Outrun 11,431; 2004 Budget 12,038; 2004 Outrun 12,622
      - Grants to social security funds and medical care: 2002 Budget 4,548; 2002 Outrun 4,747; 2003 Budget 5,560; 2003 Outrun 5,993; 2004 Budget 6,223; 2004 Outrun 7,249
      - Operating and other expenditure: 2002 Budget 6,004; 2002 Outrun 5,967; 2003 Budget 6,097; 2003 Outrun 6,211; 2004 Budget 6,573; 2004 Outrun 7,403
      - Returned resources: 2002 Budget 3,011; 2002 Outrun 3,051; 2003 Budget 3,199; 2003 Outrun 3,512; 2004 Budget 3,600; 2004 Outrun 3,788
- Ordinary budget deficit (1-2):
  - 2002 Budget 816; 2002 Outrun -350; 2003 Budget -485; 2003 Outrun -3,235; 2004 Budget -1,130; 2004 Outrun -6,235
- Public Investment Program — key lines:
  - Revenue (2002 Budget 3,894; 2002 Outrun 1,989; 2003 Budget 4,000; 2003 Outrun 1,746; 2004 Budget 4,020; 2004 Outrun 2,994)
    - Inflows from EU: 2002 Budget 191; 2002 Outrun 14; 2003 Budget 100; 2003 Outrun 77; 2004 Budget 100; 2004 Outrun 88
  - Expenditure (2002 Budget 8,948; 2002 Outrun 7,014; 2003 Budget 8,918; 2003 Outrun 8,435; 2004 Budget 9,250; 2004 Outrun 9,515)
    - Co-financed expenditure: 2002 Budget 6,192; 2002 Outrun 3,883; 2003 Budget 5,770; 2003 Outrun 4,461; 2004 Budget 5,300; 2004 Outrun 4,765
    - National investment program: 2002 Budget 1,347; 2002 Outrun 2,004; 2003 Budget 1,848; 2003 Outrun 2,418; 2004 Budget 2,550; 2004 Outrun 2,500
    - Expenditure for Olympic games infrastructures: 2002 Budget 1,409; 2002 Outrun 1,127; 2003 Budget 1,300; 2003 Outrun 1,556; 2004 Budget 1,400; 2004 Outrun 2,250
  - Public investment program deficit (4-5): 2002 Budget -4,863; 2002 Outrun -5,011; 2003 Budget -4,818; 2003 Outrun -6,612; 2004 Budget -5,130; 2004 Outrun -6,433

### Central government deficit figures (aggregated series as in source)
- Central government deficit values (units as in source):
  - -4,047; -5,361; -5,303; -9,847; -6,260; -12,688
- Corresponding percent of GDP:
  - -0.029; -0.038; -0.035; -0.064; -0.038; -0.077
- GDP series:
  - 139,574; 141,669; 150,091; 153,472; 163,934; 165,280

### Institutional arrangements, accounting reconciliation, and external audit
- MEF concentration of power:
  - MEF dominates fiscal management: redrafting ministry budgets, approving reallocations, tight pre-audit, quarterly allotments, monthly credit limits; consequence is weakened line ministry accountability.
  - Recommendation: devolve power from MEF after strengthening internal financial management systems (commitment controls, cash planning).
- Reconciliation weaknesses:
  - Main government bank Account No. 200 at the BOG is not fully reconciled; eleven groups of accounts and thousands of subaccounts exist with limited State Accounts Department monitoring.
  - Final accounts reconciliation limited; requirement exists for full reconciliation within four months after year-end but practice produces discrepancies between above-the-line and below-the-line data.
- Court of Audit (COA):
  - COA independence established in Constitution; COA engages heavily in pre-audit which consumes half its budget and limits ex post, value-for-money work.
  - Staff (as of December 31, 2004): 131 judges, and 1004 staff, of whom 599 were auditors, 270 working in regional offices, with 315 vacancies.
  - COA does not audit guarantees or tax expenditures and lacks technical capacity for auditing tax revenues or public debt.
  - Recommendation: phase out extensive pre-audit, redeploy COA resources to ex post and value-for-money audits, widen technical capacity, and follow up audit findings more effectively.

### National Statistics Service of Greece (NSSG) — independence and credibility
- NSSG lacks legislative assurance of independence; recent fiscal reporting problems have raised doubts about fiscal data integrity and NSSG independence.
- Recommendation: increase statutory independence of the NSSG or consider relocating statistical functions to an independent agency (potentially reporting to Parliament) to review assumptions, inputs, and models used by MEF and provide an independent assessment.

### IMF staff commentary — prioritised program of reforms (selected)
- Improving budget preparation:
  - Introduce program structure identifying policy objectives; present a fully consolidated budget; unify operating and investment budgets; incorporate extrabudgetary funds.
- Modernizing procedures:
  - Move away from detailed centralized controls; phase out extensive pre-audit; develop a more detailed medium-term budget framework.
- Improving integrity of fiscal data:
  - Strengthen accounting; reorient external audit to value-for-money; introduce FMIS and partial accrual accounting.
- Closer monitoring and reporting:
  - Monitor and report on operations outside central government (social security funds, local governments, other public entities); make quasi-fiscal activities more transparent.

*Source: _cr0649 (Executive Summary and selected sections)*

### Executive Summary

### _cr0649 - Executive Summary

### Overview and scope
- Assessment of fiscal transparency practices in Greece against the IMF Code of Good Practices on Fiscal Transparency based on:
  - discussions with the authorities and other organizations;
  - the authorities’ response to the IMF fiscal transparency questionnaire; and
  - other sources of information.
- Focus primarily on central government, given its predominance in the public sector.
- Transparency of fiscal management at other levels of general government is not discussed in detail; the non-central government (particularly social security funds and hospitals), which represents a significant fraction of overall general government spending, has been a source of revisions to fiscal statistics and could pose transparency issues ahead.
- The IMF Manual on Fiscal Transparency should be consulted for further explanation of terms and concepts.

### Key findings on progress and remaining challenges
- Progress:
  - Notable improvements in public availability of information, with increased publications and use of the internet.
  - At central government level, budget processes give assurances of integrity about fiscal data through independent audit and recently strengthened statistical reporting.
- Remaining challenges:
  - Basic organic budget law prescribes a traditional detailed control-oriented budget management system providing little insight into government policies, activities or performance.
  - Lack of modernization of fiscal institutions and systems; major reforms still necessary to clarify roles and responsibilities and to advance more open budget preparation, execution, and reporting.
  - Much still needs to be done on improving accounting and audit systems and extending coverage to the rest of general government.

### Main recommendations (as listed)
- (1) Present a fully consolidated budget, unifying the ordinary and investment budgets, and providing full information on the activities of extrabudgetary funds, local governments, and relevant public entities. Estimates of contingent liabilities and quasi-fiscal activities should also be included.
- (2) Central government should execute its budget through a more transparent treasury single account structure, and provide consistent and regular financing data for both central and general government to Parliament and public.
- (3) Inject a policy perspective into the budget by introducing a program structure that clearly identifies the government’s objectives, encouraging an evaluation of the efficiency and effectiveness of government activities.
- (4) Develop a detailed medium-term budget framework that would move the budget process away from its narrow incremental annual basis, supported by a more comprehensive mid-year review of budget developments and fiscal sustainability analysis.
- (5) Move in a phased way from present detailed centralized controls, and strengthen the internal financial management in budget institutions so that they can be made more accountable for managing their own budgets.
- (6) Phase out the pre-audit of the MEF’s fiscal accounting offices, and at the same time redeploy Court of Audit resources away from pre-audit to ex post systems and value-for-money audits, increasing the relevance of their annual reports and the effectiveness of parliamentary oversight.
- (7) Strengthen the present accounting system, especially in the area of reconciliation between ledger and bank records, followed by the introduction of a computerized financial management system and a phased move to at least a partial accrual accounting basis.
- (8) Strengthen transparency in tax administration by moving away from a system of universal control to a modern risk-based system through streamlining the internal organization of the tax administration, its audit procedures, compliance regulations and appeal processes, thereby curtailing the degree of discretion of tax administrators.
- (9) More closely monitor and report on the operations of the social security funds, in a consolidated manner, bringing forward the publication of the Social Budget, with a timely publication and analysis of outturns.
- (10) Make more transparent quasi-fiscal activities, and when deemed necessary for public policy, introduce explicit public service agreements, clarifying the implicit subsidies involved, with estimates of any contingent liabilities.
- (11) Better define responsibilities of lower level governments with more complete reporting on their operations, especially with regard to their borrowing, an area where strengthened regulations and improved central monitoring and supervision is recommended.

### Clarity of roles and responsibilities — detailed findings
- Definition and coverage of general government:
  - General government largely defined consistently with Government Finance Statistics (GFS) principles, but not well covered in the budget process.
  - Consolidated information on municipal expenditure and revenue, the social security sector, and public entities part of general government is not available in the budget documentation.
  - Budgets of 11 “off-budget” funds are co-published with the budget, but the rationale for their presentation outside the budget is unclear; these funds’ budgets are not subject to normal parliamentary authorization.
  - General government comprises some 149 extrabudgetary social security and pension funds; their budgets are approved by their boards, and by the Minister of Labor and Social Affairs (MLSA) and the Minister of Economy and Finance (MEF).
- Parliamentary information and oversight:
  - Parliament is provided information on, and asked for approval of, the transfer of grants and contributions to these funds from the state budget, without a due presentation of their overall budgets.
  - During the budget year Parliament is informed about planned expenditure, revenues, and balance sheet of these funds for the ongoing year, but still without much descriptive analysis.
  - Consolidated, gross expenditure and revenues of public entities are prepared ex post for reporting to Eurostat and IMF; consolidated information should be included in budget documentation to facilitate parliamentary oversight.
- Size and composition of the public sector (Box 1 data):
  - Central Government Units Covered by the Budget: Parliament, the Presidency, the Judiciary, 17 ministries, 13 regions.
  - Public Entities with Individual Budgets Classified Within Central Government Sub-sector: Social Securities Funds and Hospitals — 149 social security and pension funds; 133 medical establishments.
  - Local Government: 1,033 municipalities and villages.
  - Total General Government — Expenditure as Percent of GDP 2004 (gross): 39.2; Central Government (gross) 20.8; Public Entities 2.9.
  - Expenditure as Percent of GDP 2004 (consolidated, net of transfers to other general government units): Total General Government 29.1; Central Government 17.9; Public Entities 2.8.
  - Total consolidated figure cited: 49.8 (context in source page).
- Public enterprises, quasi-fiscal activities, PPPs, and equity holdings:
  - Relationship between government and public nonfinancial and financial enterprises is generally well defined, but specific policies and interventions need to be made more transparent.
  - Public enterprises often established as sociétés anonymes with government as full or partial shareholder; founding acts give sectoral ministers and/or the minister of finance rights that can lead to quasi-fiscal activities (QFAs) through regulated pricing and directed investment/operational decisions.
  - Example: Hellenic Railways Organization (OSE) required to submit operational plan, budget, medium-term investment plan, and borrowing decisions to the Minister of Transport and the Minister of Finance; pricing, routing, and major personnel decisions also subject to ministerial approval — resulting in structural loss-making and implicit subsidies to passengers/customers.
  - OSE receives operational and investment grant transfers and guarantees; guarantees often function as postponed grants because loan obligations are systematically taken over by government in exchange for increased equity capital, making total annual subsidy difficult to deduce from budget documents.
  - The recently adopted legal framework for Public Private Partnerships (PPPs) does not yet provide adequate protection against unwarranted fiscal risks and costs: reporting and accounting requirements for line ministries and supervising agencies are not explicit; government can participate up to 49 percent in special purpose vehicles; lack of clarity about linkage to government procurement framework and independence/governance of the PPP taskforce.
  - Greek government retains equity holdings across many sectors (utilities, transport, banking, defense, gaming, tourism); intends to withdraw from companies that could operate on a purely commercial basis. Examples of progress: reductions in telecommunications, banking, and oil refinery holdings; reforms in Olympic Airlines governance and auctioning of nonprofitable domestic routes.
  - Management of state equity holdings responsibilities shared between sectoral ministry and MEF or solely managed by MEF; companies scheduled for privatization generally transferred to privatization agency DEKA.
  - Reporting on management of equity holdings is very summary; budget document provides an overview but little insight into public enterprise budgets or government policy interventions. Final accounts published in the State Gazette but not presented to Parliament in consolidated manner with descriptive analysis.
  - Government plans to impose International Financial Reporting Standards (IFRS) on public enterprise financial accounting.

### Institutional and procedural observations (selected)
- Consolidated information, including individual categories of key revenue and expenditure, overall balance, key financing sources (including arrears and debt), and financial position (reserves and capital base) should be included in budget documentation to facilitate parliamentary oversight and assessment of grants.
- Selection of management board members of public enterprises could be made more transparent with clear guidelines on required competences and less ministerial discretion.
- A yearly report on policies and interventions toward public enterprises, with financial details, should be included in the budget documentation given fiscal involvement and risk.

*Source: _cr0649 - Executive Summary*

### 7. Public nonfinancial corporations are involved in providing some QFAs in a

### _cr0649 - 7. Public nonfinancial corporations are involved in providing some QFAs in a

### Quasi-fiscal activities and public enterprises
- Quasi-fiscal activities (QFAs) remain present in several sectors: urban transport (price setting, investment, operational activity), state railways, energy, telecommunications, defense, banking, real estate, and postal services.
- Loss-making public enterprises, especially in transport, receive active budgetary support.
- Over the past 15 years there has been an increasing effort to place public enterprises at a more arms-length relation to the state and to have them operate on commercial terms, driven partly by EU policies/regulation and partly by domestic policy shifts.
- Present and past governments have embarked on full and/or partial privatizations of public corporations most connected with competitive markets.
- A rough indicator of QFA is recurrent grants and subsidies from the state budget aimed at public enterprise activities (Table A1):
  - Year — In million Euro: 1990 — 285; 1995 — 358; 2000 — 303; 2004 — 210
  - Year — As percent of GDP: 1990 — 0.6; 1995 — 0.5; 2000 — 0.2; 2004 — 0.1
- Data supplied by the Ministry of Economics and Finance; Capital grants and loan guarantees not included.

### Profit transfers, transparency, and privatization institutional framework
- Arrangements regulating profit transfers from state enterprises to the budget are not clearly specified; profit transfers from the public enterprise sector have been minimal due to low profitability and focus on strengthening enterprises for privatization.
- The institutional framework for privatization is formed by the law establishing the Privatization Agency, DEKA.
  - DEKA can use funds obtained from previous privatizations to clear debts and bolster equity of companies to be privatized.
  - DEKA is governed by a managing board appointed by the MEF and has representations from sectoral ministries and the banking sector.
  - DEKA reports yearly to the Minister of Economy and Finance; the report is discussed in Cabinet but not transmitted to Parliament.
- Privatization processes have sometimes been managed outside DEKA, creating uncertainty over responsibility and procedures; processes have been fraught with political considerations and union resistance.
- Privatization revenues have generally not been transparently transferred to the budget but retained in a special privatization account at the Bank of Greece (BOG) and spent outside the normal budgetary process.
  - Utilization of the privatization account takes place without due approval of Parliament.
  - The account is shared with the MEF which uses it to deposit separate receipts also used outside the budget process.
  - Eurostat review concluded DEKA is an integral part of central government because it does not operate in a market environment and is fully involved in implementing government policy.

### Bank of Greece (BOG) and public financial sector relations
- The BOG is operationally fully independent of government and plays no fiscal role; since 1999 it has been part of the European System of Central Banks (ECB).
- The government of Greece holds only a small part of BOG shares but is entitled to the largest part of profits; profit remittances are determined by Article 71 of the Statute of the Bank of Greece.
- BOG provides banking services to government and public sector (cashier of government, payment processing, cash management, account holding) and is remunerated for these services.
- BOG invests some 70 percent of social security funds’ reserves in government bonds.
- Since 1994 BOG does not provide credit in any form to government or any public institution or corporation; Article 45 of the Bank’s Statute states the BOG remunerates the Greek government on accounts held at the bank at an interest rate “reflecting market terms and conditions.”

### Public financial corporations and banking sector
- Government is full shareholder of only two banks: the Postal Savings Bank and the Agricultural Development Bank.
- Through full, partial and indirect shareholdings (including via pension and social security funds) the government still maintains full or partial control over some eighty percent of the banking sector (on an asset basis).
- Government shareholdings in the largest three banks have decreased substantially over the last 15 years, but social security funds’ equity holdings imply potentially substantial government influence.
- Postal Savings Bank and Agricultural Development Bank operate under special legislation and exhibit some nonmarket practices supportive of their client base (e.g., maintaining small service locations; relatively easy credit access to farmers with longer maturity credit instruments).
- Fully and partially owned banks have historically had an intensive supportive credit and equity relationship with the public enterprise sector.
- Government has indicated state-owned banks are to fully divest their equity holdings in public enterprises; medium-term strategy is to continue divesting holdings in the banking sector.
- No firm data available on scope of preferential credit provision by state-influenced banks to public enterprises; further privatization of public financial enterprises is expected to close such indirect QFA channels.

### Fiscal management and intergovernmental relations
- Public administration in Greece has four main levels: municipalities and communes (first level), prefectures (second level), regions (deconcentrated units of central government), and central government.
  - There are 1,031 municipalities and 54 prefectures.
  - In 1997 there was a consolidation of 5,751 units to 1,031 units.
  - Law 2503/1997 consolidated the existing regions into 13.
- Regions function as deconcentrated units of central government; each region is headed by a secretary general appointed by central government and whose budget is approved by Parliament.
- Expenditure responsibilities are legally defined but allow overlapping activities between levels; municipalities handle town planning, public works, municipal police, traffic, health inspection and sanitation, school maintenance, kindergartens, nursing homes, community facilities, licensing of companies, and management of municipal property and infrastructure, though many activities are regulated or delegated by central government.
- A constitutional amendment prohibits central government from delegating responsibilities to municipalities without adequate provision of resources; core municipal tasks cannot be taken away by central government, but central government can declare issues of national importance.
- Financial autonomy of local government is limited in practice:
  - Municipalities receive roughly 57 percent of their revenues from central government; about 30 percent of that amount is received as earmarked grants and the remainder as a general purpose grant.
  - Municipal own revenues were some 38 percent of resources in 2004, mostly from property fees and charges.
  - Loans comprised not more than 6 percent of municipality resources.
  - Prefectures are dependent for almost 96 percent of their revenues on government transfers; the remainder is almost totally own revenues from fees and charges.
- Municipal revenue-sharing entitlements and grant metrics:
  - Municipalities are entitled to a share of 20 percent of income tax; 50 percent of road duties; 20 percent of taxes on interest of deposits; and 3 percent of the real estate transfer tax.
  - The general purpose grant of municipalities comprised approximately 7 percent of total central government tax revenue in 2004.
  - Prefecture transfers were in part funded from tax-sharing arrangements comprising 15 percent of road duties; 10 percent of the real estate transfer tax; 4.5 percent of car registration tax; and 2 percent of VAT.
- Distribution formula for general purpose grants is based on objective criteria defined in law (population, accessibility by road, level of tax autonomy, economic growth and unemployment levels, climatic conditions); population is the most dominant factor.
- Exact transfers to individual municipalities and prefectures are only made known on April 1st of the current budget year, creating uncertainty for municipal budget formulation; recommendation that amounts be indicated at least a month before finalization or that indicative amounts be communicated by the Ministry of Interior.
- Fiscal decentralization progress has been limited over the last 15 years:
  - Local government expenditure totaled only 2.9 percent of GDP in 2004.
  - The relatively small size of local government and pervasive central government influence constrain capacities for effective local service provision and financial management, and contribute to in-year supplementary budget requests and politically pressured bail-outs.

*Source: _cr0649 - 7. Public nonfinancial corporations are involved in providing some QFAs in a*

### 19. Local government is allowed to borrow without being guided by objective

### 19. Local government is allowed to borrow without being guided by objective criteria; present indebtedness of local government nevertheless seems low and balanced by substantial cash holdings.

### Local government borrowing: legal restrictions and gaps
- Two main restrictions on local government borrowing:
  - For every loan approval is required from the municipal or prefectural council and for loans above 3 million euros a council majority of two-thirds must provide this approval.
  - Each loan requires a report on the repayment capacity of the municipality or prefecture, which must be approved by the regional administration on behalf of the Minister of the Interior.
- Uncertainties and gaps:
  - It is unclear whether local government repayment capacity is evaluated in a systematic way.
  - There are no restrictions on the modalities of borrowing instruments (for example, no maximum debt-revenue or debt-service to revenue limits).
- Contextual note:
  - The two-thirds council majority requirement is reportedly difficult in Greece’s political context.

### Legal and administrative framework for budget management: formal principles
- The legal framework incorporates important public finance principles:
  - (1) taxes can only be imposed by law;
  - (2) expenditure can only be undertaken after approval of the budget in Parliament;
  - (3) expenditure and revenue are presented jointly for all of central government;
  - (4) government financial data is presented in some detail, according to an agreed classification, on a gross basis, in an ex-ante form in an annual budget and ex post in final accounts;
  - (5) management and coordination of the budget process is assigned to the minister of finance;
  - (6) responsibilities of line ministries and their authorizing officers are specified;
  - (7) clear rules exist on the issuance and reporting of government guarantees;
  - (8) contingency provisions prescribe clear and stringent conditions for the use of such funds;
  - (9) ex-ante and ex post audit procedures to control expenditures are defined in some detail;
  - (10) key elements of a yearly budget cycle are identified and prescribed;
  - (11) expenditures are balanced by revenues and financing.

### Budget management in practice: shortcomings and implementation gaps
- Main implementation weaknesses:
  - The existing budget management framework is not always applied comprehensively.
  - Expenditure is channeled through off-budgetary, extrabudgetary, and arms-length public entities, so there is no overall consideration of government expenditure.
  - An ordinary and an investment budget are prepared separately.
  - The Minister of Finance is only required to submit a supplementary budget when the expenditure and revenue in the budget differ “significantly” from the budget estimates (Article 8 of the Organic Budget Law); in practice the MEF almost never submits supplementary budgets and has agreed internally to do this only if the budget totals differ with more than 5 percent form the original budget estimates.
  - Other shortcomings of the organic budget law: lack of medium-term focus; a weak link with, and poor costing of government policy caused by the input basis of allocations; no use of hard budget ceilings in budget preparation; insufficient provision of review and prioritization of expenditure; limited autonomy and managerial flexibility of line ministries and agencies; and an overly complex auditing process.
- Underdeveloped areas relative to other EU countries:
  - Requirement to present in-year budget execution reports;
  - Reporting on effectiveness and efficiency of government activities;
  - Holding managers accountable for performance.
- Data and documentation weaknesses:
  - The quality and structure of data and descriptive analysis in budget documents needs upgrading.
  - Line ministries do not present separate memoranda on their ministries’ activities and achievements as part of the budget documentation.

### Institutional responsibilities within the Ministry of Economy and Finance (MEF)
- Assignment and fragmentation:
  - Fiscal management of central government is assigned exclusively to the Minister of Economy and Finance, but internally responsibilities are fragmented.
  - Within the MEF, the GAO and the former ministry of national economy remain distinct institutional entities despite the merger.
  - The GAO has a fragmented structure with unclear responsibilities; parts of GAO functions are carried out by other institutions.
- Specific functional splits:
  - In budget preparation, the GAO prepares the Ordinary Budget, and the National Economy prepares the investment budget.
  - Greece has a Public Debt Management Agency (PDMA) which has improved maturity and risk management of the Greek debt portfolio.
  - Overall accounting and reporting functions for debt management towards EU, international organizations and Parliament have been retained by the GAO, as well as some responsibilities for debt issuance.
  - The debt managed separately by the GAO has been one source of the misreporting confronted in the recent Eurostat data revision.
- Recommendation implied by the text:
  - There is an urgent need for an overall institutional review of the MEF to consolidate and reorganize basic functions to strengthen fiscal and treasury management and remove overlaps.

### Fiscal sustainability and medium-term focus
- Current practice:
  - The organic budget law does not prescribe presentation and analysis of fiscal sustainability issues in the budget.
  - Greece prepares a macro fiscal outlook which forecasts fiscal developments at a very aggregated level.
  - Fiscal projections are not corroborated by medium term bottom-up budget estimates, leaving large uncertainties on the accuracy of the projections.
  - Project data is not subjected to sustainability analysis with respect to debt stock developments, nor are scenarios developed to assess risks with regard to sustainability.

### Social security sector: structure, finances, and risks
- Structure and fragmentation:
  - Greece has 149 social security and pension funds regulated by a complex system of laws and regulations evolved since 1992.
  - Each social security fund has individual by-laws and statutes.
  - Funds are organized by beneficiaries’ employment group (e.g., farmers, lawyers, merchant marine personnel, bank personnel).
  - Many funds provide multiple benefits including health care, disability insurance, and pensions.
  - Government has been trying to integrate private sector employees into the largest social security fund, IKA.
- Financing and reserves:
  - The system is funded by contributions of employees, employers, and the state and provides benefits at levels regulated by government.
  - The sector has an approximate investment reserve of 20 billion euros, which is managed for some 70 percent by the BOGG in a bond mutual fund.
- Operational and governance issues:
  - Social security funds are largely fragmented and in part heavily dependent on government for bridging financial deficits.
  - Individual funds run deficits and seek grant transfers from central government rather than increase premiums or decrease benefits.
  - Payment arrears of employers, specifically state-owned and loss-making employers, have deteriorated financial situations of certain funds.
  - A poorly managed and inefficient health sector has driven up health costs considerably.
  - Budget preparation for funds appears to be done on the basis of expected transfers from the state rather than transfers determined on the best calculation of entitlements minus contributions.
  - There is limited urgency in improving collection of contributions or discussing health care costs with the hospital sector.
  - Fragmentation weakens funds’ relationships with employers, government, and health care providers.
- Governance and supervision:
  - Social security funds are managed by a management board; the chairman and members are selected or approved by the Minister of Labor and Social Affairs (MLSA).
  - The recently established National Actuarial Authority (NAA) could develop standardized methodology for pension fund accounting; the NAA’s activities currently seem largely advisory and less than its formal mandate implies.
  - At present, overall supervision and control of pension funds still rests with the MLSA; this role should be shifted to an adequately resourced NAA in the coming years.

### Off-budget expenditure bodies and inclusion in the budget
- Observations:
  - In addition to social security and pension funds there are a number other EBFs, some engaged in normal government activities.
  - The 11 most important off-budget expenditure funds could easily be included in the budget of respective line ministries rather than only included for information.
  - Inclusion in the budget would also seem possible for certain government agencies, such as the Employment Agency which provides unemployment benefits.
- Rationale:
  - While arms-length relationships can be useful in some cases, they do not justify placing agency budgets off-budget when their activities are normal government functions.

### Monitoring, reporting, and audit of social security funds
- Reporting practices and weaknesses:
  - MLSA exerts detailed control over many aspects of funds’ activities but not of budget implementation monitoring and supervision.
  - Social security funds provide budgets, quarterly reports and annual reports to both the MLSA and the MEF.
  - Budgets are approved by the MLSA and also by the MEF if a grant transfer is requested.
  - Quarterly reports and final accounts are often produced with considerable delay, or even not at all; they are sent to MLSA and MEF for information but seem only to be used for statistical purposes.
  - Timely in-year intervention or investigation into expenditure overruns or lack of revenues does not take place.
  - Neither the Cabinet nor Parliament is informed on the budget execution of the sector.
  - MLSA produces an annual Social Budget providing summary information, but it is often delayed and not published at the time of the state budget when grants are decided.
- Reporting content shortcoming:
  - Pension fund reports present financial assets and liabilities but future year pension obligations towards contributors are not monetized, so overall solvency cannot be easily ascertained.
  - The Social Budget reports only on present and past year planned figures and contains no forward projections.

Box: The Social Budget (summary of statutory features)
- Article 86 of Law 2084/1992 requires MLSA to publish a Social Budget and submit it to the President of the Greek Parliament annually.
- Contents and coverage:
  - Summary financial data on individual and groupings of social security and pension funds;
  - Analytic information on past trends, demographic data and other performance indicators;
  - Covers all revenues, expenditures and balances associated with social insurance, health and social protection;
  - Based on budgets of covered institutions and transfers from the State Budget;
  - Includes funds’ cash flow position and a statement of financial assets and liabilities.
- Limitations and process:
  - The document reports only on present and past year planned figures with no confrontation with realization figures from final accounts.
  - There are no forward projections in this document.
  - Timeliness problems: the Social Budget has been produced with delays (example: in 2004 substantial delays due to adoption of a new computerized accounting system; in 2005 it reached the public in early July).

### Tax policy and administration: legislative clarity and administrative complexity
- Legal basis:
  - Article 78 in the Constitution: taxes cannot be levied without a statute enacted by Parliament specifying the tax base and tax rate.
- Administrative challenges:
  - Overly complex administrative procedures and a multitude of exemptions, stamp duties and “third party taxes” make the tax system untransparent.
  - Frequent changes in tax legislation reduce openness and predictability.
  - Reported uncertainty in income tax law interpretation, particularly what business expenses are deductible.
  - The Code of Books and Records specifies in three volumes legal requirements for business books and documents; it is comprehensive but voluminous and nontransparent as a consequence.
- Tax system features and reform agenda:
  - A large number of tax exemptions exist, such as reduced VAT for books, newspapers, food and medicine, and a reduction on the tax on interest on treasury bills and bonds.
  - Multitude of stamp duties and nontransparent “third-party taxes” from compulsory contributions to numerous pension and social security funds.
  - Authorities have introduced reforms since 2001 inspired by a Tax Reform Commission report.
  - Remaining reform opportunities: abolish many more stamp duties; end preferential treatment of some products and services; eliminate many exemptions to corporate taxation; make explicit the extent of “third-party taxes.”

*Source: _cr0649 - 19. Local government is allowed to borrow without being guided by objective criteria; present indebtedness of local government nevertheless seems low and balanced by substantial cash holdings.*

### 31.  Rights and obligations of taxpayers and the tax authorities (for example, to

### _cr0649 - 31.  Rights and obligations of taxpayers and the tax authorities (for example, to

### Tax administration: legal rights, practice, and shortcomings
- Rights and obligations of taxpayers and the tax authorities (for example, to obtain third party information, take enforcement actions, and other regulatory measures) are specified in the law.
- Administration of the tax law has been both ineffective for the government and burdensome for the taxpayers, with a great deal of focus on the satisfaction of formal requirements which can be extremely detailed and extensive.
- The audit process is frequently conducted with bargaining between taxpayers and tax officials over the level of assessment; uncertainty in some income tax provisions contributes to this situation.
- A recent effort by the authorities seeks greater clarity and certainty through the use of "objective standards" to reduce discretion and bargaining.
- The Tax Reform Commission estimated that there were some 300 of these third-party taxes in 2002.
- The bargaining in audits "is not necessarily based upon corruption, but contributes to a lack of transparency in the process of collecting lawfully owed taxes."

### Appeal procedures and administrative review
- Decisions by the tax administration can be appealed by the taxpayer, if the appeal is recorded in the local office within 60 days of formal notification of the tax discrepancy or penalty by that office.
- Taxpayers may, but are not required to, take a first administrative appeal to an “Article 70 Committee” for most tax discrepancies.
  - Article 70 Committees are comprised of an inspector from the internal Economic Supervision Directorate, a member of the Chamber of Commerce, and the local Director of the office which has raised the assessment.
- Although not required, almost all appeals begin at the Article 70 Committee level, and the vast majority are settled there (frequently through compromise or bargain).
- Most administrative appeals of this type are settled quickly, within a few months at most.
- A taxpayer may, after decision by the Article 70 Committee (or instead), appeal to the administrative courts; this process can take from two to five years to complete and requires a lawyer.
- The key role played by the Directors of the local field offices, who assess tax discrepancies and sit in the appeals process, results in an appearance of lack of independence in the appeals process, and should be eliminated.
- Appeals of minor amounts are heard only by the local office Director, at the administrative level.

### Public servants’ code of behaviour and anti-corruption arrangements
- Since 1999 the conduct of civil servants in Greece has been regulated by a Code of Civil Servants (2683/1999).
- The code regulates appointments, obligations for, and restrictions on, behaviour and conduct, employment conditions and remuneration, and disciplinary measures.
- Reducing corruption in the public administration is a government priority; inspection bodies include the Public Administration’s Inspectors and Audit unit at the Ministry of Interior, inspection divisions in various ministries, the Police and the Coast Guard.
- Regulation of procedures for investigating financial crime falls under the Special Control Directorate in the MEF; prosecuting bribery cases is the responsibility of the Ministry of Justice.
- Diligent enforcement of anti-corruption laws remains an issue.

### Budget preparation: structure and calendar
- Greek budget preparation procedures are clear but not in line with international best practices; the process is fragmented into the ordinary budget, the investment budget, and budgets of many extrabudgetary funds and entities, obscuring a consolidated picture of public finances.
- Box 3: The Budget Preparation Process (selected procedural milestones and legal bases)
  - The fiscal year begins on January 1 and ends on December 31 (The Organic Budget Law, 2362/95, Article 4).
  - January: Macroeconomic forecasts for coming budget year (t) and the following two years (t+1, t+2) prepared by MAD of MEF.
  - Spring: Main fiscal parameters, based on the SGP requirements, for year t together with projections for t+1 and t+2 are established.
  - May: Budget circular distributed to ministries and regions (2362/95, Article 6, Budget Circular).
  - July: Spending proposals sent to GAO, and proposals regarding investments sent to MEF.
  - July: Updated macroeconomic forecasts by MAD.
  - July–September: Negotiations between GAO/MEF and ministries and regions.
  - September: GAO prepares draft budget.
  - Mid-September: Minister of Finance presents draft budget to Prime Minister; Government decision on draft budget.
  - First Monday of October: Draft budget submitted for discussion to the Financial Committee of the Parliament (Constitution, Article 79).
  - November 20 (40 days before the beginning of the fiscal year): Minister of Finance presents the budget proposal to Parliament (Constitution, Article 79, compare 2362/95, Article 8).
  - End of December: The budget is approved by Parliament (Constitution, Article 79).
  - If the budget is not approved by Parliament before the beginning of the budget year, the budget of the previous year is extended for four months (Constitution, Article 79, paragraph 5 and 2362/95, Article 9, paragraph 2).

### Macroeconomic framework and policy basis
- The budget preparation process starts with a macroeconomic forecast prepared by the Macroeconomic Analysis Department (MAD) of the MEF, published in “Current Economic Developments of the Greek Economy.”
- Projections are translated into a fiscal framework based on the Stability and Growth Pact (SGP) criteria: a restriction of the deficit of the general government to no more than 3 percent of GDP and a target for the general government debt ratio to GDP of 60 percent.
- The fiscal framework contains revenue assessments and targeted levels for central government expenditure and deficit for the upcoming budget year plus the two following fiscal years.
- There are no formal procedures in which restrictions in the budget are fixed at the early fiscal framework stage; overall expenditure is tentatively broken down but the process is largely bottom-up and incremental.
- The fiscal policy objectives formulated early do not fully translate into the government’s budget proposal; the lack of explicit budget policy targets consistent with overall fiscal policy for general government leaves fiscal policy largely at the discretion of the GAO.
- The implicit fiscal target for the central government is not set for the budget outcome and does not fully restrict expenditure during execution.

### Forecasts, transparency, and medium-term planning
- The macroeconomic assumptions used for budget preparation are openly presented in the budget memorandum, but it is questionable to what extent these forecasts are used consistently in the budget process.
- MAD uses input from other institutions such as GAO and the Bank of Greece; forecasting models are not publicly disclosed and no public institution provides alternative forecasts for comparison.
- Despite aggregate forward estimates, the budget process focuses on the current fiscal year with little attention to the medium term; data are presented for the upcoming year and the two following years but the process is year-focused.
- Deficit and debt ratios of the general government sector are used but not fully institutionalized in the budget process; the general government deficit target is not suitable as an operational fiscal target for central government and needs translation into a balance target or expenditure target for central government.
- The abundant use of tax expenditure, state guarantees, and QFAs diminishes the relevance of fiscal targets.
- Estimates of new policy initiatives and ongoing costs must be specified separately in spending proposals with analysis beyond the upcoming fiscal year, but in the budget proposal to Parliament the cost of discretionary measures is presented only at an aggregate level.
- The sensitivity of budget estimates to changes in economic variables is not assessed and fiscal risks are not fully evaluated and presented in the budget.
  - The March 2005 SGP report examined the fiscal impact of less favourable macroeconomic conditions, albeit without discussion of corrective policy measures.
  - There is a need for better monitoring of fiscal risks posed by hidden or contingent liabilities, including government guarantees and contingent liabilities from social security funds.
  - The amount of new guarantees is restricted to 3 percent of the ordinary budget expenditure each year; guarantees are registered and presented to Parliament, but screening is not guided by clear criteria and there is no systematic risk analysis or information on other contingent liabilities.

### Clarity and controls in budget execution
- Accounting rules and regulations, including internal control, focus mainly on legal and financial compliance; budget execution is regulated by the organic budget law, Law No. 2362 of November 27, 1995.
- Budget execution procedures remain “traditional” with detailed input compliance and multiple checks: Department of Financial Services (DFS) of line ministry/agency, Fiscal Audit Office (FAO), and Court of Audit (COA) staff stationed across entities.
- Multiple controls are applied only to a small set of ordinary budget expenditure—operational and other current expenditures—which constitute about 10–15 percent of the total ordinary budget in 2005.
- Multiple expenditure controls principally apply after obligations have been incurred and focus on limiting cash payments rather than limiting current liabilities; commitment control is left to the line ministry, allowing orders that may over-commit funds.
- Lack of control over commitments is evidenced by carry over of unpaid obligations from one year to another year.
  - The Ministry of Education accumulated unpaid obligations amounting to € 80 million at the end of December 2004, primarily due to inadequacy of budget provisions; these were carried forward and paid out of 2005 budget. Such carry forward was authorized by the MEF for a number of ministries without a separate budget line allocated.
  - Arrears appear to be rolled over year to year; there is no regular reporting system toward the GAO to enable it to monitor outstanding commitments during the year.
- Government payment operations are effected by a main government account, which functions as a quasi-treasury single account (TSA).

*Italic: IMF content unit _cr0649 - 31. Rights and obligations of taxpayers and the tax authorities (for example, to).*

### Box 5.

### Box 5. An Overview of the TSA in Greece

### Structure and components of the TSA
- Greece has set up a TSA, and all its cash balances are consolidated in bank Account No. 28 with the BOG.
- The TSA in BOG has been structured in the following manner:
  - The main bank account for all inflows and outflows is Account No. 200 titled as “Concentration of collections and payments.” This account receives all inflows and outflows of government cash.
  - In addition to Account No. 200, there are eleven groups of accounts, most of which are linked to Account No. 200 at regular intervals and on the advice of the MEF in certain cases. Each group of accounts has a specific purpose.
  - These groups of accounts have subaccounts. For example, A/C 231 Public Investment program accounts has about 2,000 project accounts, each with a separate check book but all payments are made out of A/C 231. Similarly A/C 234, Other Special Accounts, has a number of “Out of Budget” special fund accounts like Privatization Account.
  - On the top of all these accounts is TSA - Account No. 28 titled as “Greek Government – Cash Management Account”. This account simultaneously records all transactions of inflows and outflows passing through A/C No. 200 and its various sub-accounts on a real time basis and presents the overall cash balance position of the government.
  - The central bank has managed these accounts very efficiently with the help of modern IT supported banking system.

### Identified issues with the TSA arrangement
- A substantial part of the bank accounts included in the TSA are not under full control of the MEF:
  - The Privatization Account included in A/C 234 is not fully owned by the government, and can be utilized only for specified purposes.
  - A/C 234 includes accounts of legal public entities, which are managed independently by the respective agencies.
  - The amount of funds flowing through these accounts and the cash balances held on them can be substantial.
  - As a result, the cash balance of government is much larger than it needs to be as substantial parts of it are earmarked and can not be used for cash management purposes.
- The extrabudgetary accounts in Greece are a conduit for channeling quasi-government revenue to quasi-government expenditure; keeping these funds off-budget is described as poor public finance management, not transparent, and inefficient for cash management.
- A number of extrabudgetary funds under the control or indirect control of line ministries are held at commercial banks. These accounts should be integrated in Account No. 28, and also be available for cash management purposes.
- It appears that the number of subaccounts is very large. There is a need to review all these accounts and close unnecessary accounts. It is quite likely that some of these accounts may be dormant and need not be continued.

### Recommendations and prudent practices
- For the purpose of financing the budget, it would be prudent to adjust the overall cash balance in A/C No. 28 by the balances of those bank accounts on whose balances the treasury does not have full command.
- It might be useful to put all such accounts in a distinct subaccount.
- Integrate extrabudgetary funds held at commercial banks into Account No. 28 so they are available for cash management purposes.
- Review and close unnecessary or dormant subaccounts to streamline the TSA.

### Key statistics and facts
- Eleven groups of accounts are linked to Account No. 200.
- A/C 231 Public Investment program accounts has about 2,000 project accounts.
- Overall cash balances held in Account No. 28 averaged over 500 million euros in 2004.

*Source: Box 5. An Overview of the TSA in Greece*

### 55. Detailed fiscal information primarily covers central government. The publication

### _cr0649 - 55. Detailed fiscal information primarily covers central government. The publication

### Coverage and quality of fiscal data
- Detailed fiscal information primarily covers central government; general government coverage and quality have many deficiencies.
- Fiscal data largely meet SDDS timeliness and periodicity standards, but deviate from ESA 95 standards in areas such as recording of military procurement expenditure based on cash payments instead of delivery of equipments.
- Areas requiring improvement: coverage and quality of fiscal data at the general government level; recording and consolidation of off-budget spending; presentation of transfers to public entities; integration of ordinary and investment budgets to provide a transparent view of overall government spending plans.

### Budget documents: scope and presentation
- The state budget focuses on the central government; eleven off-budget funds are co-published with it, but little information is provided on general government operations.
- Budget documents cover, on a cash basis, operations of the central government including ordinary and investment budgets of central ministries, regions and prefectures, and eleven off-budget funds.
- Ordinary budget estimates are presented by main administrative units and a four-digit quasi-economic line item classification; investment budget has a much less detailed economic classification.
- Eleven off-budget funds include Funds for Defense and EU Subsidies on Production of Agricultural Products (oil, cotton and tobacco).
- Projected financial flows with the EU are broken down by type; transfers to public entities are presented by sector of economic activity.
- An executive summary of the budget is made available in English at the website www.mof-glk.gr.
- Budget documents exclude off-budget spending through a number of extrabudgetary and special purpose accounts; information on transfers to public entities including hospitals and social insurance funds is presented by a single budget line.

### Defense expenditures and off-budget military spending
- Defense expenditures are reported in the budget; defense transactions are budgeted and accounted for in the same way as those of other agencies.
- Defense budget estimates include details of expenditure by major departments including Army, Navy, Airforce, and Intelligence Services.
- During 2000–03 a substantial portion of military expenditure was kept outside of the budget and financed from special loans; this practice of off-budget spending and nonrecording of military expenditure financed through special defense borrowing has been discontinued starting with the current fiscal year.
- The 2005 budget estimates for the Ministry of Defense fully reflect military expenditure, including that procured through special borrowings.

### Past and forecast fiscal data presented
- State budget documents present main fiscal aggregates for two years prior to the budget year, and two years beyond the budget year.
- The Budget Introductory Report contains: analysis of recent economic developments; projections for main macroeconomic aggregates; major underlying assumptions; summary tables showing revenue, expenditures, the balance and financing for actual spending two years prior to the budget, revised outturn for the current year, and estimates for the budget and two succeeding years.
- Detailed budget estimates for central ministries do not provide estimates for the two future years.

### Off-budget fiscal activity and contingent liabilities
- Government guarantees are fully disclosed in budget documents; other contingent liabilities are not.
- The budget law limits total guarantees issued in a year to not exceed 3 percent of ordinary budget expenditure for the relevant budget year, but in practice this discipline is undermined because the MEF has little information before enterprises make commitments and requests for additional financing tend to be accommodated after a “review” not subject to stringent nor transparent criteria.
- The 3 percent limit is not applied to guarantees issued for debts to meet unforeseen expenditures such as natural disasters and earthquakes.
- The budget introductory document provides yearly data for 1989–2004 on: (i) guarantees issued; (ii) outstanding guarantees (at the end of each year); (iii) guarantees called; (iv) commission received on guarantees; and (v) net budgetary payments to satisfy guarantees.
- There is no assessment of contingent liabilities such as indemnities or risks arising from guarantees, privatization or private/public partnership, and no information on implicit guarantees of deposits of public sector banks or liabilities arising from pension systems of previously state-owned enterprises.
- No information is provided in budget documents on quasi-fiscal activities; examples include state-owned enterprises in the transport sector providing price subsidies for rail and road transportation in selected areas that are not costed and classified as such in the budget estimates.

### Tax expenditures
- A statement on tax expenditures is included in budget documents; presentation raises concerns.
- A descriptive account of tax expenditure is presented to Parliament in a supplement to the budget, but this report does not include a full quantification of foregone revenue resulting from tax exemptions.
- The Greek tax system grants almost 1,000 exemptions from various taxes.
- Law No. 2214, Article 59 of 1994, requires the government to present a full account of tax expenditure to Parliament together with the budget proposal every year.
- The tax expenditure report classifies tax expenditures by type of tax and by beneficiaries; it presents the purpose of each tax expenditure but no policy categorization.
- The introduction to the tax expenditure report contains a brief description of the method for estimating foregone revenue; an estimation of the cost is given for less than half of the tax exemptions.
- The baseline tax used when estimating cost consists of existing tax legislation.
- There has been virtually no integration of tax expenditure in the budget process.

### Publication of data on debt and financial assets
- Information on gross public debt is published regularly; central government debt including special debt raised for defense needs is provided in the Introductory Budget Report.
- A Public Debt Bulletin is published quarterly by the Public Debt Division of the GAO; same figures are provided to the IMF SDDS.
- There is no publication of data on borrowings by local governments, social security funds, and public enterprises; local governments are not required to submit financial data on their outstanding debt and there is no systematic monitoring of state enterprise debt.
- Debt reports do not provide projections of future debt service requirements.
- Information on government financial assets is published annually but incomplete; records are not maintained fully and in a consolidated manner.
- The Balance Sheet is presented to Parliament and ratified by its Plenary Session; it is primarily based on a system of cash basis accounting adjusted with some accrual information.
- The Balance Sheet does not give a full picture of all financial assets, such as equity investments in public entities, and known liabilities such as unmet obligations at the end of the year.
- The current economic classification for budgeting and accounting is not compatible with any international classification systems and is somewhat close to the GFS 1986 classification.

### Commitment to timely publication and data dissemination
- Greece subscribes to the Special Data Dissemination Standards (SDDS) and meets the timetable for providing data on central administration and general government operations.
- Monthly data is provided on central government revenues and expenditure.
- Greece adheres to its commitment to provide annual general government fiscal data to the EU.
- Laws and decrees provide a timetable for release of budget and accounting data, but there is no formal announcement of an advance release calendar for fiscal data of general government (such a commitment exists for central government fiscal data).
- Although Greece produces data on government debt through quarterly bulletins, comprehensiveness and timeliness could be improved.

### Assurances of integrity and accounting framework
- Variance between budgeted and actual outturn at the aggregate level is disclosed to the public, although deviations are not explained.
- Central government budget estimates contain large and relatively stable expenditures such as payroll and debt service; computerized systems support determination of present levels and projection of future levels.
- GAO controls release of cash against appropriations according to availability; this helps keep variances between budget estimates and outturns to tolerable levels at the aggregate level, but widest deviations occur within detailed budget line items at the three digit level of the four digit basic classification.
- Continual reallocations are made within the fiscal year to ministerial budgets with GAO Budget Department approval; these reallocations are not reflected in published outturn data since published data is at the aggregate level.
- Extrabudgetary accounts allowed by Law No. 2771/1999 permit budget institutions to have own accounts for earmarked purposes; most are independent or “out of budget,” while only eleven off-budget funds are shown in budget documents; these have less extensive controls and limited oversight.
- No presentation of fiscal balance data for the general government and no discussion of deviations between budgeted and actual outturn.
- The Greek accounting system is cash-based and regulated by Law No. 2362/1995; GAO maintains revenue and expenditure accounts and prepares annual accounts including the balance sheet.
- The authorities have expressed desire to move towards accrual accounting with implementation of a computerized financial management information system.

### Key central government budget figures (Table 1: Greece: Central Government Budget 2002–04, Euro million)
- ORDINARY BUDGET
  - 1. Net revenue (a-b): 2002 Budget 37,453; 2002 Outrun 37,081; 2003 Budget 38,900; 2003 Outrun 37,500; 2004 Budget 41,420; 2004 Outrun 39,236
  - a. Revenue: 2002 Budget 38,920; 2002 Outrun 39,048; 2003 Budget 41,050; 2003 Outrun 39,881; 2004 Budget 43,620; 2004 Outrun 42,035
    - Direct taxes: 2002 Budget 14,618; 2002 Outrun 14,813; 2003 Budget 15,510; 2003 Outrun 15,397; 2004 Budget 16,385; 2004 Outrun 16,484
    - Indirect taxes: 2002 Budget 20,666; 2002 Outrun 20,989; 2003 Budget 22,035; 2003 Outrun 21,484; 2004 Budget 24,341; 2004 Outrun 22,999
    - Non-tax revenue: 2002 Budget 3,636; 2002 Outrun 3,246; 2003 Budget 3,505; 2003 Outrun 3,000; 2004 Budget 2,894; 2004 Outrun 2,571
  - b. Tax refunds: 2002 Budget 1,467; 2002 Outrun 1,967; 2003 Budget 2,150; 2003 Outrun 2,381; 2004 Budget 2,200; 2004 Outrun 2,799
  - 2. Expenditure (a+b) (2): 2002 Budget 36,637; 2002 Outrun 37,431; 2003 Budget 39,385; 2003 Outrun 40,735; 2004 Budget 42,550; 2004 Outrun 45,471
    - a. Interest payments: 2002 Budget 8,951; 2002 Outrun 9,134; 2003 Budget 9,400; 2003 Outrun 9,416; 2004 Budget 9,750; 2004 Outrun 9,466
    - b. Primary expenditure: 2002 Budget 27,686; 2002 Outrun 28,297; 2003 Budget 29,985; 2003 Outrun 31,319; 2004 Budget 32,800; 2004 Outrun 36,005
      - Salaries and pensions: 2002 Budget 14,123; 2002 Outrun 14,533; 2003 Budget 15,130; 2003 Outrun 15,602; 2004 Budget 16,404; 2004 Outrun 17,565
        - Wages and salaries: 2002 Budget 10,380; 2002 Outrun 10,547; 2003 Budget 11,097; 2003 Outrun 11,431; 2004 Budget 12,038; 2004 Outrun 12,622
      - Grants to social security funds and medical care: 2002 Budget 4,548; 2002 Outrun 4,747; 2003 Budget 5,560; 2003 Outrun 5,993; 2004 Budget 6,223; 2004 Outrun 7,249
      - Operating and other expenditure: 2002 Budget 6,004; 2002 Outrun 5,967; 2003 Budget 6,097; 2003 Outrun 6,211; 2004 Budget 6,573; 2004 Outrun 7,403
      - Returned resources: 2002 Budget 3,011; 2002 Outrun 3,051; 2003 Budget 3,199; 2003 Outrun 3,512; 2004 Budget 3,600; 2004 Outrun 3,788
  - 3. Ordinary budget deficit (1-2): 2002 Budget 816; 2002 Outrun -350; 2003 Budget -485; 2003 Outrun -3,235; 2004 Budget -1,130; 2004 Outrun -6,235
- Public Investment Program
  - 4,085; 2,003; 4,100; 1,823; 4,120; 3,082
  - 4. Revenue (a+b): 2002 Budget 3,894; 2002 Outrun 1,989; 2003 Budget 4,000; 2003 Outrun 1,746; 2004 Budget 4,020; 2004 Outrun 2,994
    - a. Inflows from EU: 2002 Budget 191; 2002 Outrun 14; 2003 Budget 100; 2003 Outrun 77; 2004 Budget 100; 2004 Outrun 88
  - 5. Expenditure (a+b+c): 2002 Budget 8,948; 2002 Outrun 7,014; 2003 Budget 8,918; 2003 Outrun 8,435; 2004 Budget 9,250; 2004 Outrun 9,515
    - a. Co-financed expenditure: 2002 Budget 6,192; 2002 Outrun 3,883; 2003 Budget 5,770; 2003 Outrun 4,461; 2004 Budget 5,300; 2004 Outrun 4,765
    - b. National investment program: 2002 Budget 1,347; 2002 Outrun 2,004; 2003 Budget 1,848; 2003 Outrun 2,418; 2004 Budget 2,550; 2004 Outrun 2,500
    - c. Expenditure for Olympic games infrastructures: 2002 Budget 1,409; 2002 Outrun 1,127; 2003 Budget 1,300; 2003 Outrun 1,556; 2004 Budget 1,400; 2004 Outrun 2,250
  - 6. Public investment program deficit (4-5): 2002 Budget -4,863; 2002 Outrun -5,011; 2003 Budget -4,818; 2003 Outrun -6,612; 2004 Budget -5,130; 2004 Outrun -6,433

*Source: _cr0649 - 55. Detailed fiscal information primarily covers central government. The publication*

### 7. Central Government Deficit (3+6)

### 7. Central Government Deficit (3+6)

### Key fiscal figures
- Central government deficit values (units as in source):
  - -4,047
  - -5,361
  - -5,303
  - -9,847
  - -6,260
  - -12,688
- (percent of GDP):
  - -0.029
  - -0.038
  - -0.035
  - -0.064
  - -0.038
  - -0.077
- GDP:
  - 139,574
  - 141,669
  - 150,091
  - 153,472
  - 163,934
  - 165,280

### Fiscal management: concentration of power in the MEF
- Findings:
  - Fiscal management overly concentrates power in the MEF, to the detriment of accountability and transparency in other parts of the budget system.
  - The MEF has taken over many financial functions normally carried out by ministries in other countries, intervening at all stages and at a very detailed level.
  - MEF practices observed: redrafting ministry budgets, approving reallocation requests, tight control through pre-audit, quarterly allotments, and monthly credit limits.
  - Consequences: removal of line ministry ownership of budgets, undermined accountability, no incentive for ministries to improve financial management capacity.
  - Central controls similarly pervasive for hospitals and local governments.
- Recommended sequencing:
  - Devolve power from the MEF to other units of government to make them accountable and put relationships on a more transparent footing.
  - Precede devolution with strengthening of internal financial management systems, especially commitment controls and cash planning.

### Reconciliation of accounts and accounting weaknesses
- Findings:
  - Scope for improving reconciliation of budget accounting (above-the-line) and financing (below-the-line) data.
  - Main government bank account No. 200 at the BOG does not appear fully reconciled.
  - GAO State Accounts Department reconciles Account No. 200 only to the extent of its own transactions; other GAO departments and the Investment Department of the MEF operate the account and may not reconcile their transactions.
  - In addition to Account No. 200, there are eleven groups of accounts with thousands of subaccounts, each managed by different agencies; the State Accounts Department is not comprehensively monitoring these bank reconciliations.
  - Revenue and expenditure accounts are not reconciled by the GAO with accounts of the respective line ministries and revenue collecting agencies; agencies do not receive accounting data from the GAO about their own transactions.
  - Final accounts are required to be fully reconciled after a period no longer than four months after the end of the fiscal year; current reconciliation is limited, producing considerable discrepancy between above-the-line fiscal data and below-the-line financing data.
- Data reporting gap:
  - The government needs to produce data on budget financing on a regular basis, which should include financing through arrears, privatization receipts, etc.

### External audit and the Court of Audit (COA)
- Institutional features:
  - External audit is carried out by the Court of Audit whose independence is established in the Constitution (Articles 73, 79, and 98).
  - COA modeled on the French auditing system; part of the judicial system, technically under the Ministry of Justice.
  - COA functions: hold to account managers of funds (“coordinators” and “public accounting officers”); judge disputes arising from audit; inform Parliament on legality and soundness of public fund management.
  - COA leadership: President chosen by Cabinet on advice of the Minister of Justice, selected from Plenum members with more than four years in office.
  - Staff profile (as of December 31, 2004): 131 judges, and 1004 staff, of whom 599 were auditors, 270 working in regional offices, with 315 vacancies.
  - COA prepares its own budget according to MEF directives; MEF issues final form of COA budget as a separate chapter in Ministry of Justice budget for Parliamentary approval.
- Audit focus and limitations:
  - COA heavily involved in pre-audit of all nonregular central government expenditure; pre-audit consumes half of the Court’s budget.
  - Pre-audit work involves detailed examination of payment orders to assess legality and regularity; extended in 2003 to municipalities.
  - For central government, COA focuses on recurrent supplies expenditure, only 10–15 percent of the budget, but reviews larger tenders for legal procedures.
  - COA does not review guarantees or tax expenditures, and is not involved in auditing tax revenues or public debt due to lack of technically competent staff.
  - COA is dominated by a legal focus rather than efficiency or effectiveness; limited capacity and budget constrain movement to value-for-money audits.
- Parliamentary interaction and impact:
  - COA reports are published and presented to Parliament with the following year’s budget, but their impact on resource allocation is limited.
  - Parliamentary discussion mainly assesses legality of detailed transactions; lack of policy orientation and output identification limits COA’s ability to assess efficiency or effectiveness.
  - Follow-up of audit findings is largely left to the executive; COA’s relation with Parliament is limited to submission of the annual financial statement and a report thereon.

### Macroeconomic analysis and statistical reporting
- Macroeconomic forecasting:
  - Macroeconomic Analysis Department in the MEF prepares forecasts for the coming year and three forward years; these are contained in the Report on Current Developments of the Greek Economy (published twice yearly) and in the report for the EU’s SGP.
  - Underlying models are not published though macroeconomic assumptions are; no external scrutiny of the underlying model is in place.
  - Recommendation: underlying model should be made publicly available and macroeconomic risks discussed in budget documentation.
- National Statistical Service of Greece (NSSG):
  - NSSG formally responsible for national statistics system, utilizes fiscal information to prepare national accounts, and disseminates fiscal information internationally and to the EU.
  - NSSG is a General Secretariat assigned to the MEF; its head is nominated by the minister of economy and finance.
  - Legislative Decree 3627/1956 grants NSSG administrative and financial independence; it regards itself as technically independent in collecting, processing, and disseminating government finance statistics.

### IMF staff commentary: progress and main recommendations
- Progress noted:
  - Greece is making progress in meeting fiscal transparency code requirements, especially public availability of information, increased publications, and internet use for fiscal data.
  - Recent strengthening of statistical reporting.
- Remaining challenges:
  - Need to improve accounting and audit systems and extend coverage to the rest of general government.
  - Basic organic budget law prescribes a traditional detailed control-oriented budget; management systems provide little insight into government policies, activities, or performance.
  - Major reforms necessary to improve clarity of roles and responsibilities and to advance more open budget preparation, execution and reporting.
- Mission’s main recommendations:
  - Improving budget preparation:
    - Introduce a program structure that clearly identifies the government’s policy objectives.
    - Present a fully consolidated budget.
    - Unify operating and investment budgets.
    - Incorporate activities of extrabudgetary funds.
  - Modernizing budget procedures:
    - Move away from detailed centralized controls.
    - Phase out extensive and multiple pre-audits.
    - Develop a more detailed medium-term budget framework.
  - Improving integrity of fiscal data:
    - Strengthen the present accounting system.
    - Reorient external audit to a more value-for-money approach.
    - Introduce a computerized financial management information system (FMIS).
  - Closer monitoring and reporting:
    - Monitor and report on government operations outside the central government (social security funds, local government units, other public entities).
    - Make quasi-fiscal activities more transparent.

*IMF staff commentary and findings as presented in the source document.*

### 80. There is a need to consolidate and better integrate fiscal management functions.

### There is a need to consolidate and better integrate fiscal management functions

### Consolidation and integration of fiscal management functions
- Within the MEF the GAO and the former Ministry of National Economy remain distinct institutional entities: the GAO prepares the Ordinary Budget, and the National Economy the Investment Budget.
- The GAO contains many specialized divisions that often share different aspects of the same function, obscuring the overall picture and complicating internal communications and transparency.
- In debt management:
  - Greece has developed a Public Debt Management Agency (PDMA) which is in charge of 85 percent of the central government debt.
  - Performance, accountability and internal reporting for debt management are the responsibility of PDMA.
  - Reporting of debt as a fiscal parameter towards the EU, other international organizations, and Parliament; servicing of the debt; and debt issuance for special purpose funding remain with the GAO.
- Recommendation: integrate tasks, concentrate expertise, and assign clearer accountability to well-defined functional departments.

### Inclusion of all government operations in fiscal decision making
- Quasi-fiscal activities (QFAs), although limited, are not always transparent; in some sectors (e.g., transportation) the extent of financial support by government is unclear.
- State owned enterprises and public financial institutions undertake QFAs; government has direct or indirect shareholdings in a significant part of the financial sector.
  - Where government has a 100 percent share (for example, the Agricultural Development Bank, and Consignment and Loans Fund) some business practices are dictated by public policy, giving rise to limited unreported QFAs.
- Recommendation: continue divestment from commercially oriented activities and use service agreements to clarify implicit subsidies to public enterprises.

### Regulatory framework for public–private partnerships (PPPs)
- The new legal framework under consideration should:
  - Specify clear and regular reporting requirements for ministries and agencies towards the MEF.
  - Limit further the overall risk the public sector is allowed to shoulder.
  - Link PPP legislation clearly to procurement law obligations.
  - Provide a more well-defined and more independent “gatekeeper” function to assess and recommend use of the PPP instrument.

### Privatization receipts and transparency
- Privatization processes have not always been transparent; expenditures arising from privatization receipts to the budget are not always clear.
- The legal framework for privatization is not very detailed and allows discretionary and nontransparent decision-making.
- Privatization receipts deposited in a special account at the BOG are utilized without the approval of Parliament, and without transparent reporting.
- Recommendation: increase clarity on source and use of privatization receipts and strengthen legal frameworks and reporting.

### Intergovernmental roles and local government financial management
- Responsibilities of different levels of government are evolving and could be more clearly defined; existing law leaves scope for overlapping activities.
- A major bottleneck: absence of a comprehensive land registry system.
- Despite constitutional decentralization, local government financial autonomy is limited and central government influence remains pervasive.
- There is no central monitoring or supervision of local government borrowing for the sector as a whole despite fiscal risks from such borrowing.
- Recommendation: strengthen in-year reporting of local government finances, have these consolidated by the MEF, and report them alongside central government budget execution.

### Financial supervision and borrowing limits for local government
- Assessing repayment capacity of local government is extremely difficult given limited financial autonomy and financial risks from:
  - Loans with grace periods, variable interest rates, and in foreign currency.
- If decentralization proceeds, explicit limits on overall borrowing and debt service should be contemplated.
- No central monitoring and supervision is performed on the sector as a whole.
- Present macroeconomic data suggests local government cash balances may largely compensate local government indebtedness, but continuation is not guaranteed.
- No data available on the distribution of local government indebtedness.
- For active fiscal policy based on the overall general government deficit (as required by the Maastricht Treaty), central government should urgently develop the capacity to monitor consolidated general government finances.

### Taxation legal framework and administration
- Tax expenditures are comprehensively and transparently disclosed in the budget, but compulsory levies by various funds (third-party taxes) are not disclosed.
- Vast use of tax exemptions and stamp duties complicates tax policy and reduces transparency.
- Effectiveness of tax collection needs improvement and greater transparency by:
  - Streamlining audit procedures, compliance regulations and the appeals process.
  - Curtailing discretion of tax administrators and ending negotiations between tax collectors and taxpayers.

### Open budget preparation, execution, and reporting
- Greece meets many elements of the transparency code with qualifications:
  - Annual budget process is open but structure and presentation are only partially consistent with international standards.
  - Overall balance of general government is main indicator for EU purposes; operationally central government deficit is more important for budget management.
  - Budget forecasts and underlying macroeconomic assumptions are mostly presented.
  - Procurement rules conform to EU standards.
  - Basic accounting and internal control procedures are in place but do not generally conform to international standards.
  - Accounting system can produce reasonably accurate in-year reports on the central government budget outturn, but not on general government finances.
  - Fiscal reporting covers all of general government but is limited in content and timeliness in some areas.
  - Audited fiscal accounts of central government are available within 10 months.
  - There are no consolidated audited accounts of general government.
- Main areas for improvement are highlighted below.

### Budget decision-making, consolidation, and multi-year framework
- Budget focuses on institutions and detailed line items (inputs) rather than outputs or policy-based programs; policy statements are general and ministries do not give detailed policy-based descriptions of spending plans.
- Recommendation: move towards programmatic budget classification with costing and detailed policy-based targets per program.
- There is no fully consolidated central government budget:
  - Central government budget is split between ordinary and investment budgets with different classification systems and many extrabudgetary funds and public entities.
  - Recommendation: curtail use of extrabudgetary funds and consolidate ordinary and investment spending in a unified budget.
- Budget lacks a multi-year budgetary framework despite semi-annual multi-year macro-fiscal forecasts published by the MEF and the SGP requirement for three-year projections beyond the budget year.
  - Forecasts are at a very aggregated level with limited connection to annual budget formulation.
  - A statement of medium-term fiscal objectives is not included in the budget document and not subject to parliamentary approval.
  - Recommendation: adopt a multi-year budget framework, publish fiscal risk analysis (including loan guarantees and PPP risks) with the budget.

### Internal controls and decentralization of expenditure control
- Present system focuses on pre-audit of central government expenditure and is divided between:
  - Internal line ministry financial administration units,
  - GAO deconcentrated control units—the fiscal audit offices,
  - The Court of Audit.
- All three internal audit checks are largely procedural and legalistic, overlapping and wasteful, not conforming to EU best practice.
- A proposal for a fourth GAO investigative control organization is being advanced.
- Recommendation: develop internal control function within ministries, transfer internal control tasks to ministries, with MEF setting standards and supervising compliance to preserve control quality and data integrity.

### Public availability of fiscal information
- Much fiscal information on central government operations is readily available, but not comprehensive.
- Budget documents lack detailed information on extrabudgetary funds and special accounts, and provide limited summary data on general government.
- Improvement: from 2005 defense expenditures are comprehensively reported in the budget.
- Statements of tax expenditures and guarantees are included in the budget documents, but not a full account of contingent liabilities.
- Information on gross public debt is published; information on government financial assets is not published.
- Advance release data calendars are not always made available.
- Remaining deficiencies: lack of consolidation at general government level, absence of programmatic classification, incomplete information on financing, improper quantification of contingent liabilities, off-budget activities and arrears.
- Recommendations:
  - Adopt full multi-year budget framework.
  - Identify and include quasi-fiscal activities explicitly in the budget.
  - Provide a more extensive mid-year review of budget implementation.
  - Present an enhanced and more timely Social Budget alongside the annual Budget, include final account information, and detail government’s future intentions for the sector.

### Assurances of integrity, accounting, and the Court of Audit
- Budget data reliability has improved, notably after a fiscal audit with Eurostat cooperation.
- Government plans further computerization to strengthen fiscal data systems.
- The Court of Audit (COA) is independent, part of judicial branch, with mandates covering the majority of government activities.
- Accounting policy and procedures need strengthening:
  - Statements on accounting policy are not included in budget and final accounts documents.
  - Accounts reconciliation and fiscal reporting could be strengthened.
  - Record keeping and compilation rely on multiple stand-alone software applications, some dated, creating risks of inconsistencies.
  - Government has contracted consultants to introduce a modern IT-based financial management information system (FMIS).
  - Opportunity with FMIS: move budget accounting at least partially from cash basis to accrual basis (a declared government objective).
  - Main government bank account, No. 200 at the BOG, does not appear fully reconciled because of multiple agencies operating it.
  - Immediate action: fully reconcile all bank accounts with ledger accounts and reconcile monthly budget implementation data with line ministries’ and revenue agencies’ accounting records.
- Court of Audit reform needs:
  - Move away from an overly legalistic approach to audit; reorient and strengthen external audit to be more relevant.
  - Legislature largely ignores audit reports and does not follow up on audit findings.
  - COA’s strict focus on legality limits its impact on fiscal data integrity.
  - Tasks not currently undertaken by COA but desirable: audit of public debt reporting and check on conversion of Eurostat fiscal reporting methodology to GAO practices.
  - Tasks that could be phased out: extensive pre-audit function that compromises independence of ex-post audit and duplicates MEF controls, contributing to payment delays and mutual arrears.
  - COA is almost twice the size of equivalent supreme audit institutions in European countries of similar population size.
  - Recommendation: widen technical capacity through employment of other professions, move to systems and value-for-money auditing, and redeploy resources away from pre-audit to new audit functions.

*IMF staff assessment excerpt.*

### 97. The National Statistics Service should be independent. The National Statistics

### 97. The National Statistics Service should be independent. The National Statistics

### Independence of the National Statistics Service of Greece (NSSG)
- The National Statistics Service of Greece is not given legislative assurance of independence.
- Recent fiscal reporting problems have cast severe doubts on:
  - the integrity of Greek fiscal data, and
  - the independence of the NSSG.
- Considerations highlighted:
  - Whether credibility would be enhanced if fiscal data were provided by an independent agency outside the MEF.
  - Whether credibility of macroeconomic forecasts and budget data reported by the MEF could be enhanced if an independent agency—perhaps one that reported directly to the parliament—reviewed the assumptions, inputs, and models used by the various agencies within the ministry to provide its own independent assessment of the status of the budget estimates.

### Key findings from the Summary Tables (relevant to statistical independence and fiscal transparency)
- Overall summary:
  - Greece has made progress in meeting the requirements of the fiscal transparency code in recent years.
  - Publications and use of the internet have improved dissemination of fiscal information on central government.
  - Use of independent audits has increased and statistical reporting has recently been strengthened.
  - Much still needs to be done to improve reliability and effectiveness of accounting and audit systems, and to extend their coverage to the rest of general government.
  - Main challenges include:
    - Moving from a detailed, control-oriented, input-based budget management system to one that provides clearer insight into government policies, activities and performance.
    - Modernizing fiscal institutions and systems to clarify responsibility and accountability and provide managerial flexibility.
- Priority areas for improvement (selected items relevant to data credibility and independent oversight):
  - (1) Present a fully consolidated budget, unifying the ordinary and investment budgets, and providing full information on the activities of extrabudgetary funds, local governments, and relevant public entities. Estimates of contingent liabilities and quasi-fiscal activities should also be included.
  - (2) Central government should execute its budget through a more transparent treasury single account structure, and provide consistent and regular financing data for both central and general government towards Parliament and public.
  - (4) Develop a detailed medium term budget framework that would move the budget process away from its narrow incremental annual basis, supported by a more comprehensive mid-year review of budget developments and fiscal sustainability analysis.
  - (6) Phase out the pre-audit of the MEF’s fiscal accounting offices, and redeploy Court of Audit resources away from pre-audit to ex post systems and value-for-money audits, increasing the relevance of their annual reports and the effectiveness of parliamentary oversight.
  - (7) Strengthen the present accounting system, especially reconciliation between ledger and bank records, followed by introduction of a computerized financial management system and a phased move to at least a partial accrual accounting basis.
  - (11) Better define responsibilities of lower level governments with more complete reporting on their operations, especially with regard to their borrowing, where strengthened regulations and improved central monitoring and supervision is recommended.
- Specific assurance-related findings:
  - 4.2.3: The National Statistical Service of Greece has not been given legislative assurance of full independence. (Medium-term priority.)

### Public availability and reporting issues affecting credibility
- Public availability assessment highlights:
  - The state budget focuses on the central government; 11 off-budget funds are co-published with it, but little information is provided on general government operations. (2.1.1 — Medium-term priority.)
  - Government guarantees are fully disclosed in budget documents, but quasi-fiscal activities and contingent liabilities are not. (2.1.3 — Medium-term priority.)
  - Information on general government debt figures provides only a partial picture of public sector indebtedness. Information on published government financial assets is incomplete. (2.1.4 — Medium-term priority.)
  - The macro forecast is published in the “Current Economic Developments of the Greek Economy” and restated in the budget. (3.1.3)
  - Analysis of fiscal risks/sensitivity analysis: No. (3.1.5)
  - Sustainability Analysis: No. (3.1.1)
  - The accounting system is capable of producing in-year reports on central government budget outturn, but does not cover general government. (3.4.1 — Medium-term priority.)
  - Consolidated general government final accounts: Not compiled. (3.4.2)

### Policy implications and recommendations (derived from source text)
- Increase the statutory independence of the NSSG to strengthen credibility of fiscal and macroeconomic statistics.
- Consider establishing or relocating statistical functions outside the MEF to an independent agency, potentially reporting directly to Parliament, to:
  - review assumptions, inputs, and models used by MEF agencies, and
  - provide an independent assessment of budget estimates and macroeconomic forecasts.
- Improve transparency and consolidation of fiscal reporting to include:
  - full consolidation of ordinary and investment budgets,
  - comprehensive reporting on extrabudgetary funds, local governments, social security funds, contingent liabilities, and quasi-fiscal activities.
- Strengthen audit and accounting frameworks by:
  - phasing out pre-audit within MEF accounting offices,
  - shifting Court of Audit resources toward ex post and value-for-money audits,
  - implementing a computerized financial management system and moving towards partial accrual accounting.
- Publish and institutionalize fiscal risk and sustainability analyses and extend reporting coverage to general government to enhance external scrutiny and policy credibility.

*Source: _cr0649 - 97. The National Statistics Service should be independent. The National Statistics*

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